To help readers better understand the nuances of foreign policy, CFR staff writers and Consulting Editor Bernard Gwertzman conduct in-depth interviews with a wide range of international experts, as well as newsmakers.

Brazil’s October 3 presidential election gave no decisive answer as to who will lead the world’s fourth largest democracy in 2011. A potentially complicated runoff election is scheduled for October 31. Brazilian political analyst João Augusto de Castro Neves says Workers’ Party candidate and presidential favorite Dilma Rousseff--who garnered 46.9 percent of the vote--is still likely to prevail, despite a potential deal between her two rivals to pool votes behind remaining candidate Jose Serra of the Social Democratic Party--who received 32.6 percent of the vote. Financial markets’ non-reaction to the country’s election reflects growing international confidence in Brazil’s maturing democracy and economic progress, says de Castro Neves. But the next president will still need to create better economic policies that avoid traditional emergency economic plans and instead tackle the country’s new "risks of living with abundance," he says. On the diplomatic front, either candidate would likely ease away from close relations with authoritarian regimes like Iran and Cuba, since these initiatives were the result of President Lula da Silva’s "hyperactive presidential diplomacy," he says.

There is speculation that front-running Workers’ Party candidate Dilma Rousseff might be challenged by a deal between her close competitor Jose Serra and the Green Party Candidate, Marina Silva. How will that play out in the runoff on October 31?

A look at Brazil’s recent history shows that even when there’s a runoff, usually the one that was first place is still the favorite.It was a surprise that Rousseff didn’t win in the first round, but she’s still the favorite, [considering President] Lula de Silva’s popularity plays in her favor. The "transfer of votes" idea is very uncertain in Brazil. Even if the Green Party’s Silva declares that she’ll support Serra, that doesn’t meant that all 19 percent of voters will go and vote for Serra.

During the past few presidential elections, we were talking about undoing everything that the predecessor did in terms of policies. We’re passed that now, which means our democracy is maturing.

Why did Silva make a bigger-than-expected gain in the election?

First, opinion polls in Brazil tend to inflate the numbers of the official candidate, so some say they didn’t pick up on Marina Silva’s numbers. There’s basically a mistake in the methodology of opinion polls in Brazil, but there is also a lot of dissatisfaction with the bipartisan politics in Brazil between the Workers’ Party (PT) and the Social Democratic Party (PSDB). The Green Party actually came as a third choice, [as] a protest vote and an ideological vote with Marina. It’s a party that tends to be much less tainted by scandals than PT and PSDB.

The Green Party in Brazil is not traditionally very strong except in a few cities such as Rio de Janeiro. Marina’s achievement in this election confirms that the Green Party is becoming a real national party. But I wouldn’t go as far as saying that this is a trend, that the Green Party will be a third force in Brazilian politics. It’s too soon to tell.

Brazil’s stock market, bonds, and currency all remained strong leading up to the vote, unlike during the volatile 2002 presidential election when Lula prevailed. Are Brazil’s growth prospects now that set in stone?

There are economic challenges, but things are not so unstable in Brazil today as they were years ago. Today, there are a few imperatives that every candidate has to face in Brazil, the first imperative being economic stability. The real plan that was established in the 1990s--which stabilized the economy through monetary policy, fiscal policy, and exchange rate policy--is now respected by every political force in the country. There’s also the social imperative: cash transfer programs for poverty alleviation. There isn’t a single major political party in Brazil that would challenge these two imperatives. During the past few presidential elections, we were talking about undoing everything that the predecessor did in terms of policies. We’re passed that now, which means our democracy is maturing, but there are still a lot of challenges ahead, especially welfare reform [and] tax reform.

What kind of policies can we expect from a new government in tempering the strength of the Brazilian real against the U.S. dollar, which harms Brazil’s export industry?

Interest rates in Brazil are so high, and have been so historically, to fight inflation. Brazil is seen as a good place to put your money, because as the economy stabilizes and they have high interest rates, people think, "Let’s send our dollars there." Petrobras, the state-owned enterprise, is also planning to invest billions of dollars to explore the country’s newly discovered oil reserves, which have been attracting a lot of capital. The challenge is trying to lower interest rates and stabilize the flow of capital in and outside the country. But it’s a new moment in Brazilian politics, and the environment of abundance creates risks of politicians being more lax. Brazil is not used to having good economic indicators, so we have to learn how to deal with the risks of living with abundance. We’ve always dealt with the opposite problem: not having enough money to invest, [which] led to trying to cut down expenditures and fix the economy in an emergency manner. But there isn’t a historic example for politicians to follow. Rousseff is not facing directly this problem. Her [policies would be] business as usual. With Serra, on the other hand, some economists close to him are saying, "We have to curb public expenditure, reduce government wages, increase public investments on infrastructure."

Do you expect the next government to carry on Lula’s close ties to authoritarian leaders such as Cuba’s Fidel Castro, Venezuela’s Hugo Chavez, and Iran’s Mahmoud Ahmadinejad, despite the strain on U.S. relations?

The only thing that Brazil wants from the United States is to be recognized not only as an important regional player, but an important global player.

Whether Serra or Rousseff wins, I expect the rhetoric to deflate a little, because a lot of this more assertive foreign policy in Brazil has to do with Lula’s popularity and international charisma. Lula’s hyperactive presidential diplomacy played a really important part in Brazil’s controversial stances on the Iranian nuclear program, Cuba, Honduras’ coup d’etat. Neither Rousseff nor Serra have Lula’s popularity or charisma, so the foreign ministry--which is traditionally very risk-averse--will probably have more autonomy to adjust foreign policy to be more secure. If Rousseff wins, there wouldn’t be a radical shift, since that would be recognizing that what Lula did was wrong or was a mistake. If Serra wins, you would expect a clearer shift.

In relation to the United States, it’s always been a history of unmatched expectations or frustrations on both sides. Latin America and Brazil are not seen by the U.S. State Department as priorities. Even the fact that, when [Secretary of State] Hillary Clinton or the State Department refers to Brazil, it’s usually as part of a greater Latin American project, and not in terms of Brazil as an emerging country or as bilateral relations the way the U.S. is with China, Russia, and India. But the policy agenda of Brazil is very different from the rest of Latin America. We’re seeing a turning point in the United States about how to deal with Brazil. Should we deal with Brazil as just one more country in Latin America, under the Latin America agenda umbrella? Or should we deal with Brazil as an emerging power, like we deal with India, China, etc.? I believe the latter, but it’s a transition. The United States doesn’t have much to offer Brazil right now, and I don’t think Brazil wants a lot from the United States. It’s good for Brazil to have the United States looking elsewhere, looking at the Middle East, looking at other places, and leaving Brazil to do its own thing. The only thing that Brazil wants from the United States is to be recognized not only as an important regional player, but an important global player. That explains Brazil’s stances in cases such as Honduras, Brazil’s mission with the UN in Haiti, its adventures in the Middle East, [and] in Iran.

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